Axis Bank Chief Shikha Sharma has said the new NPA resolution framework issued by RBI came as a surprise, but sought to downplay its impact on the bank as it would have anyways made higher provisions under the new accounting norms.
The third largest private sector lender had already factored in higher bad assets recognition and the resultant provisions due to migration to the IndAS, the newer accounting system due from April 1, and therefore, it will be able to support credit growth even after setting aside more money, Sharma said.
“Transition would have involved some hit to our capital. Some of that is already going to happen because of this (RBI circular). Actually, the transition to the IndAS becomes easier because a part of that pain is already factored in,” she said here on Wednesday.
She referred to her bank’s recent announcement of raising over Rs 10,000 crore in core equity from Bain Capital and others and said the impact of migration to Ind-AS from the present accounting system was factored-in during the infusion.
“When we raised the capital, we had sized it for IndAs and for growth. Instead of the impact coming through under this new regime, a large part will come through this and we still have capital for growth,” she said.
Following the RBI measure on Monday, analysts warned of more pains on the provisioning front for banks as a greater quantum of assets will have to be recognised as non-performing ones, and resolved in a time-bound manner through National Company law Tribunals through resolution plans.
Some analysts warned that the move will result in an additional capital of up to Rs 2 trillion just to cover for the provisions. And mover 80 per cent of this higher additional capital need will be from the public sector banks. Banks are already bleeding due to the systemic clean- up of their books undertaken by RBI over the past three years and the newer accounting system may only aggravate the pains.
Asked if it will aggravate bad loans pains, she said it will “accelerate”the provisioning requirements which would have had anyways come in with the migration to the IndAS. The RBI expects provisions for the banking system to rise 30 per cent with the switch to IndAS, which converges with the International Financial Reporting Standards (IFRS).
Rating agency Icra has warned that this would take the overall NPAs at the system level to over 16.5 per cent from the projected 10 per cent by March. Sharma refused to quantify the impact on provisioning because of either IndAS implementation or the revised bad loan resolution norms.